Australian Stock Market. 14/1/11

The Australian Stock Market (weekly chart) remains within an uptrending channel from late August. The All Ordinaries Index (XAO) is currently finding resistance from the highs in November and December. A break above these could see the XAO head for the top of the channel.

The Weekly Slow Stochastic (5,5) has broken below the key 80 level and below its signal line. This week's strong action has resulted in the SS kicking up but not enough to break back above its signal line. If it does break back above its signal line, then this would be a show of considerable strength. Until it does, this market deserves caution - I won't be entering new positions until the technical picture becomes clearer.

The daily chart shows that four out of five days were up this week. The Volume Histogram shows the usual pattern of low volume on Monday and Friday, but the volumes on those two days were very low even for those low volume days. Tuesday's bar was an "inside day" - coming as it did with the chart sitting on the 50-Day Moving Average, it suggested (with such low volume the previous day) that the bears were losing conviction in this down move. Wednesday broke the short-term down trend to the upside. Thursday accelerated to the upside on much higher volume, then Friday, on very low volume, was barely positive.

An all five days, the little tick on the daily bar has ended at or almost at the top of the bar. This shows the closing position in relation to the spread for the day. This looks to me like this rally was pushed up by "hopefuls" while strong hands were judiciously, but slowly, selling into it. I could be wrong, but I don't think this rally has a lot more left in it.

To sum up, looking at the Weekly chart again - I need to see strength return with a positive reading on the Slow Stochastic and a significant break above that current resistance area. If that occurs, then it's game on once again.

Good luck

Red